This model is an application of a model described by Peter Drucker
as "the theory of the business".The central tenet of this theory is that many businesses
decline and fail because the assumptions they make that form the
basis for their fundamental business decisions (about society,
markets, customers, products, technology, their mission, etc.)
become obsolete or invalid.Since
the future is uncertain and the social environment is constantly
changing, even the soundest business theories eventually become
obsolete.For this
reason every business and organization should periodically examine their fundamental assumptions to see if they continue to reflect the current
realities they face and if not, how should they be changed.This
model provides the organization and structure to identify and
examine those assumptions and change them if necessary.

This model
is applicable to business, government and non-profit
organizations. It can also be used for new businesses and startups to identify,
examine, and make explicit the assumptions that underlie their
business planning.

Model
design

Many
of the core beliefs and assumptions underlying strategic decisions are implied rather than explicitly stated.Implied beliefs and assumptions are subject to
individual interpretation which makes them vulnerable to
inconsistency and obsolescence.This model is designed to help identify these implicit
and explicit assumptions so they can be examined.

This model is constructed in
four parts and each part
contains one or more modules.Strategic thinking is intellectually intense and
requires time to think and reflect.It is a process that is best accomplished over a period
of time.The
structure of this model provides control over this process by
breaking it into manageable segments which can be planned and
scheduledto accommodate
time for quality thinking and reflecting.

Using
this model

The
modules are the strategic and systems thinking building blocks
of this model.
Each one focuses on a specific strategic area and provides a
process for discovering the critical implicit and explicit assumptions
made and to examine the impact of these assumptions on the organization.

System thinking looks for
patterns of behavior. This requires an historical
perspective. These modules provide a framework to
examine past
and present decisions and their underlying assumptions to see
if any patterns or inconsistencies in thinking are apparent.

This
model also provides space to record these observations so they
can be made explicit and examined. The "Past" column provides a place to record
assumptions from previous defining periods in the company's history
if they are relevant.The "Current" column should reflect the
decisions and assumptions underlying your organization's current
operations.The
"Future" column is where you should record and make
explicit the decisions and
assumptions which will drive your organization's future.This "Future" column should not be completed until the current
assumptions have been examined and evaluated.

The
assumptions discovered using this model should be compared
with your current realities to evaluate their impact on
current and future performance.Update any invalid or obsolete assumptions and
re-examine your goals and strategies using these updated
assumptions.The
"Future" column can be used to record this
information.

Copying and downloading this
model

This
model is presented in a condensed form on a single worksheet
to make it easy to read and copy.The format uses Microsoft Excel 2000.
It
can be copied from this web page or downloaded.

Each part or module can then be separated into its own
worksheet and the columns and rows can then be expanded to any
size desired.Contact
Three Sigma for assistance if needed.

Discovering
the assumptions behind fundamental strategic decisions and
organizational focus is challenging and time consuming.
It requires system thinking skills to identify the
factors influencing these decisions and the assumptions upon
which they are based.Three
Sigma's help and coaching can facilitate and expedite
this process.

1.State the purpose of your organization.The purpose defines the fundamental reason for your
organization's existence and how it impacts the world.

2.State the core beliefs and or assumptions that provide
the rationale for your purpose.
These describe your perceptions of the social value and need for
your organization, who it serves, and how it intends to contribute to society.

3.State the work you do to carry out your purpose and the
recipients or beneficiaries of this work.This is how you impact your customers, employees, and
society.

4.State what your organization is trying to accomplish in
carrying out its purpose.This is your organizational vision and is typically
stated as an overarching goal.

5.State how you measure or assess progress toward vision
achievement and the standards you use to evaluate results.

6.
State your key organizational goals. These are
subdivisions of your vision that describe the operating,
financial, social, and other conditions you must bring about to
attain your vision.

7. State the indicators you
use to measure goal achievement and the indicator values that
will reflect success.

Strategic
thinking.Analyze these mission elements
for logic, reasonableness, and consistency. Identify the
critical implicit or explicit assumptions that influenced your decision to
enter or remain in this business or activity.

This
analysis may disclose that some or all of these mission
elements were not considered.
If you have difficulty identifying any of these mission
elements, they were probably not considered. This is an implicit assumption that these elements
were
not relevant to your decision to
enter or remain in this business or activity.

Identifying
and examining these assumptions is central to this strategic
thinking process.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each mission element, "what must be true for us to
be successful?"

Systems
thinking.Evaluate
these assumptions and your core beliefs against the current
realities you face to determine if they are becoming obsolete
or invalid.Assess
the impact of this evaluation on your operations.Use the Future column of this module to define your
updated beliefs and assumptions.Reexamine your mission using these updated assumptions.

Theory of the Business Model
Part 2, The External
Environment

Module 2,
Society and Its Structure

Social,
economic and political factors

Past

Current

Future

1.List the countries where your products/services are
used.(The
following questions should be answered for each country unless
the answers are identical.)

2.List the demographic factors that influence the sale
and use of your products/services.(Demographic factors include population and growth, age
profile, education, income, ethnic mix, employment,
occupations, etc.)

3.List the life style factors that influence the sale and
use of your products/services.(These include home and vehicle ownership, consumption
and recreation patterns, attitudes, values, etc.)

5.List the political factors that influence the sale and
use of your products/services.(These include type of government, market regulation,
government regulation, government stability, political
parties, environmental issues, taxes, unions, workman's
compensation, etc.)

Strategic
thinking.Analyze these social, economic and political factors to
determine what implicit or explicit assumptions about them
influenced your expectations and decisions.

This
analysis may disclose that some or all of these factors were
not considered. If you have difficulty identifying factors in any of these
categories, they were probably not considered. This
is an implicit assumption that this factor or factors were not
relevant to your operation.

Identifying
and examining these assumptions is central to this strategic
thinking activity.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each socio-economic factor, "what must be true for
us to be successful?"

Systems
thinking.Evaluate
these assumptions against the current realities you face to
determine if they are becoming obsolete or invalid and their
impact on your operations.Use the Future column of this module to define your
updated assumptions.Reexamine
your strategy and plans using these updated assumptions.

Module 3,
Markets

Market
factors

Past

Current

Future

1.
List the products and services you offer.

2.Describe the market in which your
products/services are offered.

3.
Describe your customers and prospective customers within these markets

4.Describe how your products/services are
distributed and sold (direct, through distributors, etc.).

Strategic
thinking.Analyze these market factors to determine what implicit
or explicit assumptions about them influenced your expectations and decisions.

This
analysis may disclose that some or all of these factors were
not considered. If you have difficulty identifying
any of these market factors, they were probably not considered. This
is an implicit assumption that this market factor or factors were not
relevant to your operation.

Identifying
and examining these assumptions is central to this strategic
thinking activity.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each market factor, "what must be true for us to be
successful?"

Systems
thinking.Evaluate
these assumptions against the current realities you face to
determine if they are becoming obsolete or invalid and their
impact on your operations.Use the Future column of this module to define your
updated assumptions.Reexamine
your strategy and plans using these updated assumptions.

Module 4, Customers

Customer
behavior factors

Past

Current

Future

1.Identify who makes the decision to purchase your
products/services in each of the market segments where they
are offered and where the purchasers are located.

2.Identify the critical value or values you provide that
causes your customers to purchase your
products/services rather than a competitor's. This is your
tactical advantage.

3.Identify who uses your products/services in each of the
market segments where they are offered and where these users
are located.Include
ultimate users if there are intermediate purchasers and users.

4.Identify how the the
users and/or ultimate consumers use your products/services and
what value your products/services provide them.

5.List other individuals or organizations that influence
the purchase or use of your products/services (such as
regulatory and certifying agencies) and where these
individuals and organizations are located.

Strategic
thinking.Analyze these customer behavior factors to determine
what implicit or explicit assumptions about them influenced
your expectations and decisions.

This
analysis may disclose that some or all of these behavior factors were
not considered. If you have difficulty identifying
any of these behavior factors, they were probably not considered. This
is an implicit assumption that this behavior factor or factors were not
relevant to your operation.

Identifying
and examining these assumptions is central to this strategic
thinking activity.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each customer behavior factor, "what must be true
for us to be successful?"

Systems
thinking.Evaluate
these assumptions against the current realities you face to
determine if they are becoming obsolete or invalid and their
impact on your operations.Use the Future column of this module to define your
updated assumptions.Reexamine
your strategy and plans using these updated assumptions.

Module 5, Technology

Technology
factors

Past

Current

Future

1.Identify the technology that influences the design and
manufacture or construction of your products.

2.Identify the technology that influences the
distribution and sale of your products/services.

3.Identify the technology that influences the use of your
products/services.

4.Identify the technology that influences the demand for
your products/services.

5.Identify the technology that influences the
characteristics and attributes your products/services must
possess.

Strategic
thinking.Analyze these technology factors to determine what
implicit or explicit assumptions about them influenced your expectations and decisions.

This
analysis may disclose that some or all of these factors were
not considered. If you have difficulty identifying
technology factors in any of these categories, they were probably not considered.
This
is an implicit assumption that this factor or factors were not
relevant to your operation.

Identifying
and examining these assumptions is central to this strategic
thinking activity.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each technology factor, "what must be true for us
to be successful?"

Systems
thinking.Evaluate
these assumptions against the current realities you face to
determine if they are becoming obsolete or invalid and their
impact on your operations.Use the Future column of this module to define your
updated assumptions.Reexamine
your strategy and plans using these updated assumptions.

Module 6,
Industry Competitive Structure

Structural
components

Past

Current

Future

1.List the suppliers that play a critical role in your
operations.

2.List the major competitors that influence your
operations.

3.List the potential new entries into the market that
would influence your operations.

4.List the substitute products/services that could
restructure the market.

5.
List the market segments in which you
offer products and/or
services. A market segment is a grouping of buyers and sellers within a market into categories that reflect their important differences (i.e. original equipment manufacturers, aftermarket distributors).

6.Identify which of these industry components poses
the greatest threat to your operations and why.
Prioritize the threats posed by the remaining components.

7.
Describe the actions you are taking to overcome or neutralize
these threats.

Strategic
thinking.Analyze these structural components to determine what
implicit or explicit assumptions about them influenced your expectations and decisions.

This
analysis may disclose that some or all of these factors were
not considered.If you have difficulty identifying
any of these structural components, they were probably not
considered. This
is an implicit assumption that this component or components were not
relevant to your operation.

Identifying
and examining these assumptions is central to this strategic
thinking activity.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each industry component, "what must be true for us
to be successful?"

Systems
thinking.Evaluate
these assumptions against the current realities you face to
determine if they are becoming obsolete or invalid and their
impact on your operations.Use the Future column of this module to define your
updated assumptions.Reexamine
your strategy and plans using these updated assumptions.

Theory of the Business Model
Part 3, Competitive Advantage and Core Competencies

Module 7, Competitive Advantage and Core Competencies

Skill sets

Past

Current

Future

1.List the organizational competencies needed to provide your
products/services to the users.

2.List the organizational competencies in which you must excel to provide the
quality and service demanded by the users of your
products/services.

3.List the organizational competencies that enable your
organization to provide the product characteristics or service
attributes that cause the customer to decide to purchase your product
rather than a competitor's. These are core
competencies if they are unique to you or you perform them
significantly better than others.

4.List any other competencies your organization
possesses that create customer value throughout your product
line or give you a significant cost advantage over your
competitors. These are also core competencies.

Strategic
thinking.Analyze these
organizational competencies to determine what implicit or
explicit assumptions about them influenced your
expectations and decisions.

This
analysis may disclose that some or all of these competencies
were not considered. If you have difficulty identifying any of these
competencies, they were probably not considered. This
is an implicit assumption that they were not
relevant to your business expectations and decisions.

Identifying
and examining these assumptions is central to this strategic
thinking activity.Each
assumption should complete the phrase, "We assumed that
…..".

Identifying assumptions can be
difficult. An approach that could make this simpler is to
ask for each skill set, "what must be true for us to be
successful?"

Systems
thinking.Evaluate
these assumptions against the current realities you face to
determine if they are becoming obsolete or invalid and their
impact on your operations.Use the Future column of this module to define your
updated beliefs and assumptions.Reexamine your strategy and plans using these updated
assumptions.

Theory of the Business Model
Part 4, The Big Picture

Module 8, Reviewing Your Theory
Of The Business

Assumptions

Past

Current

Future

1.List the mission assumptions you identified in module
1.

2.List the social, economic, and political assumptions
you identified in Module 2.

3.List the market assumptions you identified in Module 3.

4.List the customer behavior assumptions you identified
in module 4.

5.List the technology assumptions you identified in
module 5.

6.List the industry structure assumptions you identified
in module 6.

7.List the core competencies assumptions you identified
in module 7.

Strategic
Thinking.Examine
these assumptions for logic, reasonableness, and consistency.Reconcile any inconsistencies.

Systems
Thinking.
Identify and rank order those assumptions that are most critical to your operations.

Evaluate
these assumptions against current observed behavior patterns
and operating results to
see if they are becoming obsolete or invalid.

Update
any obsolete or invalid assumptions.
Record these assumptions in the Future column of this
worksheet.

Re-evaluate
your competitive strategy in light of these new
assumptions.